10
The great rally of
2013
was making me a bit nervous
even before Argentina shook emerging markets.
That country has done a poor job on many fronts, in-
cluding default and severe currency limits. So it’s
no surprise Argentina would have trouble. However,
its recent struggles are reminiscent of Greece’s a
few years earlier; they remind us that the weakest
link can have big ripples through the global econ-
omy. Some observers mention the parallels between
Argentina today and Mexico in
1994
. Let’s hope it
doesn’t play out that way, as
1994
was a brutal year
for emerging markets.
With risks growing and rewards shrinking, it’s a good
time to dial down risk. You can make your portfolio
more conservative either by adding some lower-risk
holdings or trimming those with highest risk. Here
are some ideas from both fronts.
Let’s start with intermediate muni-bond funds. As
Morningstar senior fund analyst Michelle Canavan
Ward discusses in the Income Strategist, munis have
become relatively attractive following a rough
2013
.
Thus, you have potential for respectable returns and
some margin of safety. However, an interest-rate
spike would hit long-term muni funds because of their
long durations. Thus, it’s probably better to hide
out in intermediate-term rather than long-term munis.
(Short-term munis are rather pricey according to
many of the managers we talk with.) Nor does this
seem like a great time for credit risk, so I’d favor
the likes of Fidelity and Vanguard, which tend to be
pretty high quality.
Allocation funds offer diversification and generally
give you a smoother ride than pure equity funds.
FPA
Crescent
FPACX
is an appealing fund run by Steve
Romick, our
2013
Allocation Fund Manager of the Year.
Romick’s quite wary of losing money, so he holds
a big cash stake and fairly cheap stocks, and he
will even short a few names. That’s an appealing
profile even after the fund enjoyed a strong year.
Vanguard Wellesley Income
VWINX
is another
cautious fund that generally holds up quite well. This
Wellington-run fund has most of its assets in high-
quality bonds, and is a real gem. As I noted, though,
bonds have their own risks, so you are trading some
stock risk for interest-rate risk if you move from a
pure stock fund to this one. That’s not necessarily a
bad move, but it depends on your needs and how
much interest-rate risk the rest of your portfolio has.
I also like cautious world-stock and world-allocation
funds as diversification, and relatively cheap Euro-
pean exposure may help them to hold up better than
most in a downturn.
Artisan Global Value
ARTGX
has just gotten cheaper on the expense-ratio front,
and its portfolio always looks pretty cheap. However,
the fund will close to new investors on Feb.
14
.
If you invest through a broker,
First Eagle Global
SGENX
is another good bet with its focus on
capital preservation.
Where I’m Worried
Internet-heavy growth funds give me that queasy
2000
-all-over-again feeling. Internet companies are
much better than in
2000
when they were
90%
hype.
The
Amazons
and Facebooks of the world have real
revenues and good business plans. But valuations are
steep in some of these names, especially
Twitter
TWTR
. Thus, I’m cautious with regard to some funds
with big Internet bets.
Credit risk in the form of bank-loan, high-yield, and
convertible bonds also worries me. They’ve all
had one heck of a run. Even though the economy has
improved, yield-chasing has made some of these
bonds pretty unattractive and has given them little
margin for error.
œ
Dialing Down Your Risk
The Contrarian
|
Russel Kinnel
Our Contrarian Approach
I go against the grain to find
overlooked funds that may be
ready to rally.
